GLOBAL MARKETS-Stocks slip, yields rise on Fed chief's testimony

Reuters Staff

4 Min Read

* Stocks turn south, yields rebound on new inflation fears

* Dollar gains as Powell suggests gradual rake hikes

* Oil prices dip before U.S. crude inventory data

By Herbert Lash

NEW YORK, Feb 27 (Reuters) - World stock markets broadly fell and government debt yields rose on Tuesday as traders perceived a greater tightening of U.S. monetary policy than forecast after remarks by the new Federal Reserve chief in testimony before the U.S. Congress.

Fed Chairman Jerome Powell pledged to balance the risk of an overheating economy and the need to keep growth on track in his prepared testimony, but Powell’s remark that inflation has strengthened since December sent yields higher and stocks lower.

The dollar added to gains against the euro, the yen and a basket of major currencies and gold prices fell as Powell’s comments were in general positive for the greenback, said Brad Bechtel, managing director of FX at Jefferies, in New York.

Market participants in general said Powell hewed to a gradual increase in rates, yet some saw his remarks as hawkish.

“It seems that Mr. Powell’s personal views on the strength of the economy have been upgraded since December,” said Jason Ware, chief investment officer at Albion Financial in Salt Lake City.

“So the market is keying off this idea of thinking maybe it won’t be three rate hikes, but maybe four,” Ware said, referring to the Fed’s forecast for 2018.

Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut said investors keyed off a question to Powell about the number of rate hikes this year.

“He said it’s his impression the economy was getting stronger, which subtly gave the indication that he was going to raise his personal forecast for four rate hikes this year,” O’Rourke said.

The dollar index rose 0.55 percent, with the euro down 0.64 percent to $1.2237. The Japanese yen weakened 0.45 percent versus the greenback at 107.42 per dollar.

On Wall Street, the Dow Jones Industrial Average fell 162.37 points, or 0.63 percent, to 25,546.9. The S&P 500 lost 21.07 points, or 0.76 percent, to 2,758.53 and the Nasdaq Composite dropped 55.93 points, or 0.75 percent, to 7,365.54.

Euro zone bond yields initially rose after Powell’s early comments but soon trimmed those gains in line with U.S. bond yields.